Regulation of Business Organizations in a Socialist Market Economy
Chapter 7: Fiduciary duties of directors, supervisors, and management executives
In the sense that business companies in China share all the fundamental attributes of modern corporations, they also suffer from the same generic agency problems, subject, of course, to the strong characteristics produced by China's social, economic, and political milieu. The first agency problem involves the conflict between the shareholders and the directors and the hired managers. In many cases, SOEs in China face an ownership vacuum, or at least have the problem of 'strong managers, weak owner'. Private Chinese companies with separation of ownership and management are also plagued by the typical conflict between the firm's owners and its hired managers as the latter tend to pursue their personal interests. The second agency problem arises from 'the conflict between, on one hand, owners who possess the majority or controlling interest in the firm and, on the other hand, the minority or noncontrolling owners'. In SOEs under strong control of the government, which is also the largest shareholder, or in private companies dominated by majority shareholders, the state agency concerned or majority shareholder look toward the subsidiaries as cash cows for ready milking, necessarily at the expense of the minority shareholders who do not have access to corporate resources. As a partial solution to these agency problems, the 2005 Company Law, for the first time, officially unveils a framework of fiduciary duties 'resembling common law fiduciary duties'.
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